{"id":107592,"date":"1959-02-23T00:00:00","date_gmt":"1959-02-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-vs-the-indo-mercantile-bank-on-23-february-1959"},"modified":"2016-10-03T06:42:08","modified_gmt":"2016-10-03T01:12:08","slug":"the-commissioner-of-vs-the-indo-mercantile-bank-on-23-february-1959","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-vs-the-indo-mercantile-bank-on-23-february-1959","title":{"rendered":"The Commissioner Of … vs The Indo Mercantile Bank, … on 23 February, 1959"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Commissioner Of … vs The Indo Mercantile Bank, … on 23 February, 1959<\/div>\n
Equivalent citations: 1959 AIR 713, \t\t 1959 SCR Supl. (2) 256<\/div>\n
Author: K L.<\/div>\n
Bench: Kapur, J.L.<\/div>\n
           PETITIONER:\nTHE COMMISSIONER OF INCOME-TAX,MYSORETRAVANCORE-COCHIN AND C\n\n\tVs.\n\nRESPONDENT:\nTHE INDO MERCANTILE BANK, LIMITED(and connected appeal)\n\nDATE OF JUDGMENT:\n23\/02\/1959\n\nBENCH:\nKAPUR, J.L.\nBENCH:\nKAPUR, J.L.\nBHAGWATI, NATWARLAL H.\nSINHA, BHUVNESHWAR P.\n\nCITATION:\n 1959 AIR  713\t\t  1959 SCR  Supl. (2) 256\n CITATOR INFO :\n R\t    1960 SC1175\t (9)\n APL\t    1962 SC1272\t (4)\n F\t    1965 SC1358\t (18)\n F\t    1967 SC 415\t (7,8)\n RF\t    1972 SC1004\t (82)\n RF\t    1975 SC1758\t (18)\n R\t    1979 SC 117\t (8)\n R\t    1985 SC 582\t (32)\n RF\t    1989 SC1737\t (7)\n RF\t    1992 SC   1\t (75)\n\n\nACT:\n       Income Tax-Business Loss-Set off-Profits made in\t Travancore\n       State-Losses incurred outside the State-Scope of the Proviso\n       to  the\tmain  enactment-Travancore  Income-tax\tAct,   1121\n       (Travancore  XXIII of 1121), ss. 4, 9, 13, 18, 32(1),  first\n       proviso-lndian Income-tax Act, 1922 (XI of 1922), ss. 3,\t 4,\n       6, 10, 14, 24(1), first proviso.\n\n\n\nHEADNOTE:\nSection\t 32(1) of  the\tTravancore  Income-tax\tAct,  which\ncorresponds to S. 24(1) of the Indian Income-tax Act,  1922,\nprovided  : \" Where any assessee sustains a loss of  profits\nor  gains  in any year under any of the heads  mentioned  in\nSection\t 9 [s. 6 of the Indian Act  he shall be entitled  to\nhave the amount of loss set off against this income, profits\nor gains under any other head in that year :\nProvided that where the loss sustained is a loss of  profits\nor gains which would but for the loss have accrued or arisen\nwithin\tBritish India or in an Indian State and would  under\nthe  provisions of clause (c) of sub-section (2) of  Section\n18  corresponding  to  s. 14 Of the Indian  Act]  have\tbeen\nexempted  from\ttax, such loss shall not be set\t off  except\nagainst profits or gains accruing or arising within  British\nIndia  or in an Indian State and exempt from tax  under\t the\nsaid provisions \".\nThe  assessees were companies having their head\t offices  in\nthe erstwhile State of Cochin with branches in the erstwhile\nState  of Travancore and in other places outside the  latter\nState.\t They made profits in Travancore State but  incurred\nlosses\tin  Cochin  State  and other  places,  and  for\t the\npurposes  of assessment to income-tax they sought to  deduct\nthis  loss from the profits made in Travancore\tState.\t The\nIncome-tax  Officer  acting  under  the\t provisions  of\t the\nTravancore Income-tax Act, determined the assessable  income\nrepresenting  only the profits made in Travancore State\t and\nunder  s. 32(1), first proviso of the Travancore  Income-tax\nAct  which corresponds to the first proviso to s.  24(1)  of\nthe Indian Income-tax Act, 1922 refused to allow a deduction\nof  the\t losses incurred.  The assessees  claimed  that\t the\nbusiness\n\t\t\t    257\nwhich they were carrying on was one and indivisible for\t the\npurpose\t of determining the amount assessable to  income-tax\nand  that  they were entitled to a deduction of\t the  losses\nincurred outside Travancore State.  The contention on behalf\nof  the income-tax authorities was (i) that under the  first\nproviso to s. 32(1) of the Travancore Income-tax Act  losses\nincurred  in  places  out- I side the  State  of  Travancore\ncannot\tbe set off against profits made in that\t State,\t (2)\nthat  though profits and losses in the State  arising  under\nthe  same  head could be set off,  the\tproviso,  aforesaid,\naffected  not only the generality of the main enactment\t but\nalso  introduced an addendum that where the profits  of\t the\nbusiness  arose in the State and the losses under  the\thead\nbusiness  were\tsustained outside that State,  those  losses\ncould not by virtue of the proviso be deducted from  profits\nmade in the State,(3) that the proviso applied- only to\t the\nbead  \" business in the two respective territories,  as\t the\nwords used therein are where the loss sustained is a loss of\nprofits or gains \" andthe   word   \"  income  \"\t is   not\nmentioned therein, and (4) that the word \" business \" in  s.\n13 of  the  Travancore Act corresponding to s.\t10  of\tthe\nIndian Act, must mean business in Travancore State under  s.\n13  Of that Act and \" business in British India \" under\t the\nIndian\tAct, because before 1939 income was  not  chargeable\nunder  the  two Acts, unless it was received or\t accrued  in\nTravancore  State or British India, as the case may be,\t and\nprofits\t and  gains  of\t business  in  territories   outside\nTravancore or in an Indian State were exempted from  payment\nof  income-tax in Travancore State or in British  India,  as\nthe case may be.\nHeld:(i)  Under s. 24(1) of the Indian Income-tax  Act,\n1922  Is. 32(1) of the Travancore Income-tax Act] a set\t off\ncan be claimed only when the loss arises under one head\t and\nthe income, profits and gains against which it is sought  to\nbe  set off arises under a different head.  In\tcases  where\nprofits and losses arise under the same head they have to be\nadjusted against each other under the provisions Of ss. 7 to\n12B of the Indian Act.\nArunachalam  Chettiar v. Commissioner of Income-tax,  (1936)\nL.R.  63  I. A. 233 and Anglo-French Textiles Co.,  Ltd.  v.\nCommissioner  of  Income-tax,  Madras,<\/a>\t[1953]\tS.C.R.\t448,\nrelied on.\n(2)The\tterritory of a proviso is to carve out an  exception\nto the main enactment and exclude something which  otherwise\nwould have been within the section; it has to operate in the\nsame  field  and if the language of the\t main  enactment  is\nclear it cannot be used for the purpose of interpreting\t the\nmain  enactment\t or  to\t exclude  by  implication  what\t the\nenactment  clearly says unless the words of the proviso\t are\nsuch that that is its necessary effect.\nAbdul  jabar  Butt  v. State of Jammu  and  Kashmir,<\/a>  [1957]\nS.C.R. 51, Ram Narain Sons Ltd. v. Assistant Commissioner of\nSales<\/a>\t '     [1955]\t 2    S.C.R.\t483,\tMadras\t   &\nJUDGMENT:\n<\/pre>\n
(1944) L.R. 71 I.A. 113
\n 33<\/span>
\n258<\/span>
\nand  Corporation of the City of Toronto v.  Attorney-General
\nfor Of\tCanada,\t [1946] A.C. 32, relied on.\n<\/p>\n
Consequently, S. 24(1), first proviso, of the Indian Income-
\ntax  Act, 1922 Is. 32(1), first proviso, of  the  Travancore
\nAct]  bars  the right of set off only where a  loss  in\t the
\nIndian States under one head is sought to be set off against
\nprofits in British India under any other head, and does\t not
\napply  to profits and losses and computation  thereof  which
\nfall  under s. 10 of the Indian Act, corresponding to s.  13
\nof the Travancore Act.\n<\/p>\n
(3)The\tmere fact that the word ” income ” is not used\tin
\nthe  proviso  does  not justify the  construction  that\t the
\nintention of the Legislature was to restrict the right to  a
\nset off of profits and losses arising in Indian States\tonly
\nto business or to modify the mode of computation under s. 10
\nof the Indian Income-tax Act.\n<\/p>\n
(4)The word ” business,, in s. 10 of the Indian Income-tax
\nAct, 1922, is not confined to business in British India,  in
\nview of the definition of ” total income ” and ” total world
\nincome\t” and chargeability of total income under s.  3,  Or
\nthe  provisions\t Of s. 4 where in the case of a\t resident  ”
\ntotal  income ” includes income, profits and gains  accruing
\nwithin or without British India.\n<\/p>\n
&
\nCIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 259 and 260
\nof 1958.\n<\/p>\n
Appeals by special leave from the judgment and orders  dated
\nAugust\t5, 1955, of the former Travancore Cochin High  Court
\nin  Income-tax\tReference Appeals Nos. 6 of 1953 and  21  of
\n1954.\n<\/p>\n
K.N.  Rajagopala Sastri, R. H. Dhebar and D.  Gupta,  for
\nthe appellant.\n<\/p>\n
G.   B. Pai and Sardar Bahadur, for the respondent in C.     A.
\nNo. 259 of 1959.\n<\/p>\n
A.   V.\t  Viswanatha   Sastri  and  Naunit  Lal,   for\t the
\nrespondents in C. A. No. 260 of 1958.\n<\/p>\n
1959.  February 23.  The Judgment of the Court was delivered
\nby
\nKAPUR, J.-These two appeals by special leave raise a  common
\nquestion  of  law,  and that  is,  whether  business  losses
\nincurred  in the erstwhile State of Cochin could, under\t the
\nIncome-tax  Act\t of  Travancore,  be  set  off\tagainst\t the
\nbusiness profits made in the erstwhile State of\t Travancore.
\nIn  Appeal No. 260\/ 58 a further question arose\t whether  in
\nthe case of
\n\t\t\t    259<\/span>
\nthat  assessee\tthe  year  ending June\t30,  1949,  was\t the
\nprevious  year\tfor  the assessment year  1950-51  with\t the
\nresult\tthat it should be assessed under the Indian  Income-
\ntax Act of 1922.  But this question was not answered by\t the
\nHigh  Court  which confined itself to  answering  the  first
\nquestion  which\t was  common  to  both\tthe  appeals.\t The
\nappellant before us in both the appeals is the\tCommissioner
\nof Income-tax and the respondents are the two assessees,  in
\none  case  a Bank and the other a private  limited  company.
\nThe  main  argument  has been confined to  the\tquestion  of
\napplicability  of  s. 32(1) and the first  proviso  to\tthat
\nsection of the Travancore Income-tax Act (hereinafter called
\nthe Travancore Act).\n<\/p>\n
In C. A. No. 259\/58 the assessee is a public limited company
\nincorporated  in the State of Cochin with branches  in\tthat
\nState as well as in what was British India and in Travancore
\nState.\t It filed its incometax return showing an income  of
\nRs.  11,872 for the assessment year 1948-49, its  accounting
\nyear  being  the  previous calendar  year.   The  Income-tax
\nOfficer\t determined its assessable income to be\t Rs.  90,947
\nrepresenting only the profit it made in Travancore State and
\nunder s. 32(1) proviso (1) of the Travancore Act he  refused
\na  deduction  of  Rs. 79,275 shown  as\tloss  from  branches
\nsituate\t outside the State of Travancore, in  British  India
\nand  other  Indian  States.  The assessee’s  appeal  to\t the
\nIncome-tax  Commissioner was unsuccessful but the  Appellate
\nTribunal  held\tthat the banking business  of  the  assessee
\nbeing one and indivisible for the purpose of determining the
\namount\tassessable to income-tax it was entitled  to  deduct
\nthe  losses  incurred  outside\tTravancore  State  from\t the
\nprofits accruing and arising in that State.  At the instance
\nof the Commissioner of Income-tax the following question was
\nreferred to the High Court of Travancore-Cochin:-
\nIs  the aforesaid sum of Rs. 79,275 a loss of  the  assessee
\narising\t outside  the Travancore State for  purpose  of\t the
\nfirst proviso to section 32(1) of the Travancore  Income-tax
\nAct ? ”\n<\/p>\n
This question was slightly modified by the High Court
\n260<\/span>
\nwhich after referring to several decided cases answered\t the
\nquestion in favour of the assessee.\n<\/p>\n
In  C. A. 260\/58 the assessee is a private  limited  company
\nwith  its registered office in the former Cochin State.\t  It
\nwas carrying on business at its head office in Cochin  State
\nand  it also carried on business in -Travancore State.\t The
\nassessment was made under the Travancore Act and relates  to
\nthe previous year ending June 30, 1949, the assessment\tyear
\nbeing 1950-51. The assesse made a profit in Travancore State
\nand  incurred  a loss in the State of Cochin and  sought  to
\ndeduct\tthis loss from the profit of Travancore\t State\tthus
\nshowing a net profit of Rs. 2,643.  This was not allowed  by
\nthe  Income-tax\t Officer  and  on  appeal  this\t order\t was
\nconfirmed  by  the Appellate  Assistant\t Commissioner.\t The
\nAppellate  Tribunal also did not accept the  submissions  of
\nthe  assessee  and upheld the order of\tassessment.   On  an
\napplication  of\t the  assessee the  following  question\t was
\nreferred to the High Court of Travancore-Cochin:-
\n” Whether on the facts and in the circumstances of the\tcase
\nthe loss of Rs. 27,709 arising in Cochin State could be\t set
\noff  against the profit of Rs. 38,998 arising in  Travancore
\nState  ? ”\n<\/p>\n
and   was   answered  in  favour  of  the   assessee.\t The
\nCommissioner has come up in appeal pursuant to special leave
\nagainst both these judgments.\n<\/p>\n
It  may\t be  stated  that  the\trelevant  sections  of\t the
\nTravancore Act which govern the two appeals are\t identically
\nworded with those of the Indian Incometax Act of 1922 (to be
\ncalled\tthe Indian Act).  The corresponding sections are  as
\nfollows:\n<\/p>\n
Headings\t\t  Sections in\t   Section in\n\t\t\t  Travancore Act.  Indian Act.\nApplication of the Act\t       4\t       4\nHead of income charge-\nable to income-tax\t       9\t       6\nBusiness\t\t      13\t      10\nExemptions of a gene-\nral nature\t\t      18\t      14\nSet off of loss in com-\nputing aggregate in-\ncome\t\t\t      32\t      24\n261<\/span>\n<\/pre>\n
It  is only necessary to set out s. 32(1) of the  Travancore
\nAct and the proviso which correspond to s. 24(1) and proviso\n<\/p>\n
(i)  of\t the  Indian Act and which  are\t necessary  for\t the
\ndecision of the appeals before us:\n<\/p>\n
S.32(1)\t ” Where any assessee sustains a loss of  profits
\nor  gains  in any year under any of the heads  mentioned  in
\nSection\t 9  (Section  6) he shall be entitled  to  have\t the
\namount of loss set off against this income, profits or gains
\nunder any other head in that year:\n<\/p>\n
Provided that where the loss sustained is a loss of  profits
\nor gains which would but for the loss have accrued or arisen
\nwithin\tBritish India or in an Indian State and would  under
\nthe  provisions of clause (e) of sub-section (2) of  Section
\n18  (Section 14(2)(c) ), have been exempted from  tax,\tsuch
\nloss  shall not be set off except against profits  or  gains
\naccruing  or  arising within British India or in  an  Indian
\nState  and  exempt  from tax under the\tsaid  provisions  “.
\n(Sections in brackets are the corresponding sections of\t the
\nIndian Act).\n<\/p>\n
So  the only difference between the two sections is that  in
\nthe  proviso  to s. 24(1) of the Indian Act instead  of\t the
\nwords  “an Indian State” the words “British India or  in  an
\nIndian\tState  ” have to be substituted.  The  question\t for
\ndecision  is  as  to how this proviso is  to  be  construed.
\nOrdinarily  the\t effect\t of an\texcepting  or  a  qualifying
\nproviso is to carve something out of the preceding enactment
\nor  to qualify something enacted therein which but  for\t the
\nproviso\t would\tbe  in\tit and\tsuch  a\t proviso  cannot  be
\nconstrued as enlarging the scope of an enactment when it can
\nbe  fairly and properly construed without attributing to  it
\nthat  effect.\tCorporation  of\t the  City  of\tToronto\t  v.
\nAttorney-General for Canada (1).  But it has been held\tthat
\na  section  framed as a proviso to a preceding\tsection\t may
\nsometimes  contain  matter  which is in\t substance  a  fresh
\nenactment  adding and not merely qualifying that which\tgoes
\nbefore.\t Rhondda Urban Council v. Taff Vale Railway (2).
\nIt was argued on behalf of the Revenue that this
\n(1) [1946] A.C. 32, 37.\n<\/p>\n
(2) [1909] A.C. 253, 258.\n<\/p>\n
262<\/span><\/p>\n
proviso\t falls in the second category and takes the  present
\ncases  out of s. 32(1) of the Travancore Act and  imposes  a
\nliability  to  tax on the profits or gains arising  in\tthat
\nState,\tdisallowing  a deduction of the\t losses\t in  British
\nIndia  and  in States other than  Travancore  State  against
\nprofits\t made in Travancore State: Rhondda Urban Council  v.
\nTaff  Vale Railway (1) and Harrison v. Ward (2).  It may  be
\nmentioned that in the majority of cases decided in India the
\nproviso to s. 24(1) of the Indian Act has been construed  in
\na  manner contrary to the submissions made on behalf of\t the
\nRevenue.\n<\/p>\n
In  order to determine the true meaning of the words of\t the
\nproviso\t it  is\t necessary and convenient to  refer  to\t the
\nscheme of the Indian Act which is admitted by the parties to
\nbe same as that of the Travancore Act.\tFrom 1922 to 1939 in
\norder  to  be taxable income, profits and gains\t had  to  be
\nreceived  or  had to accrue in British India.  In  1939\t the
\nidea  of  ‘total  world\t income’  was  introduced  and\t the
\ndefinition  of\t‘total income’ was modified  by\t the  Indian
\nIncome-tax  (Amendment)\t Act (VII of 1939) which  also\tmade
\nconsequential  changes in other sections of the Indian\tAct.
\nUnder s. 2(15) of the Act total income’ was defined to\tmean
\nthe  total amount of income, profits and gains\tcomputed  in
\nthe manner laid down in that Act.  The ‘total world  income’
\nwas  defined  as  including all income,\t profits  and  gains
\nwherever accruing or arising except income to which the\t Act
\ndid not apply.\tSection 3 provided for the charge of income-
\ntax  in\t respect of the total income of the  previous  year.
\nUnder  s.  4 the total income of any previous  year  of\t any
\nperson\twho  was resident included all income,\tprofits\t and
\ngains from whatever source derived but (i) it must accrue or
\narise to him during the year in British India or (ii) accrue
\nor arise to him without British India during such year.\t The
\nthird clause is not necessary for this appeal.\tSection 4(3)
\nprovided  what\tincome,\t profits or gains  were\t not  to  be
\nincluded  in the total income of the person receiving  them.
\nBoth under the Indian Act and under the Travancore Act
\n(1) [1909] A.C. 253, 258.\n<\/p>\n
\t\t   (2) [1922] 1 Ch- 517.\n<\/p>\n
263<\/span><\/p>\n
there were six heads of income chargeable to income tax.  In
\nthe Indian Act they were set out in s. 6 as follows:-
\nS. 6 ” Save as otherwise provided by this Act the  following
\nheads  of income, profits and gains shall be  chargeable  to
\nincome-tax in the manner hereinafter appearing, namely:-\n<\/p>\n
(iv) Profits and gains of business, profession or vocation.
\n Then  followed\t ss.  7 to 12B laying  down  the  method  of
\ncomputation of the income arising from each head.
\nIn  1941  during  the war an exemption\twas  given  for\t the
\npurpose of taxability to any income, profits or gains  which
\naccrued\t or arose within what was then called Indian  States
\nbut  which were not received or brought into British  India.
\nThis  was done by s. 8 of the Indian Income-tax\t (Amendment)
\nAct,  1941 (XXIII of 1941) by which another clause  (c)\t was
\nadded to s.    14(2) which was as follows:\n<\/p>\n
”    The tax shall not be payable by an assessee:\n<\/p>\n
(c)in respect of any income, profits or gains accruing\tor
\narising to him within (an Indian State) unless such  income,
\nprofits or gains are received or deemed to be received in or
\nare brought into the Indian State in the previous year by or
\non  behalf of the assessee or are assessable  under  section
\n12B or section 42″.\n<\/p>\n
Thus income, profits or gains arising under any of the heads
\nunder s. 6 became exempted in circumstances  above-mentioned
\nbut  the  effect of this exemption was not to  exclude\tsuch
\nincome of an assessee for all purposes as was the case under
\ns.  4(3).  Such sums were to be taken,into account  for\t the
\npurpose\t of determining the rate -under s. 16 of the  Indian
\nAct.   A further consequential change was made in, s.  24(1)
\nby
\n264<\/span>
\nthe addition of the first proviso and a similar addition was
\nmade  in  the Travancore Act to s. 32(1) which\thas  already
\nbeen  quoted  and it is this proviso which is  the  subject-
\nmatter of controversy between the parties.  A review of\t the
\nvarious sections and enactments shows that during  1922-1939
\nthe tax was leviable on income, profits and gains arising or
\naccruing to an assessee in British India.  In 1939 the total
\nincome\tbecame taxable subject to exclusions in sub-s. 3  of
\ns.  4 and the chargeability of the ‘total income’  was\tlaid
\ndown  in  s.  3. In 1941 income, profits or  gains  which  a
\nresident  made\tin  an\tIndian State  and  in  the  case  of
\nTravancore  State income, profits or gains which a  resident
\nmade  in British India or other Indian States were  exempted
\nfrom  payment of income-tax unless received or brought\tinto
\nthe  respective\t territories, but this\tincome,\t profits  or
\ngains had to be included for the purpose of calculating\t the
\nrate.\n<\/p>\n
Now  we\t come to s. 24(1).  This section was  introduced  in
\n1922 before which under the Indian Act of 1918 a loss  under
\none head of income could not be set off against income under
\nanother\t head,\tthe taxability of income arising  from\teach
\nhead  being separate.  By the addition of this\tsection\t the
\nloss  under one head of profits or gains was allowed  to  be
\nset  off against income, profits and gains under  any  other
\nbead in any assessment year.  There was also a provision  in
\ns.  24(2) for carrying over the loss after such set off\t had
\nbeen  effected.\t Section 24(1) became the subject matter  of
\ncontroversy in the courts.  The Privy Council in Arunachalam
\nChettiar  v.  Commissioner of Income-tax(1) held  that\tthis
\nsection\t was  meant for a set off of profits  arising  under
\ndifferent  heads and not where profits and losses had to  be
\nadjusted  if  they arose under the same\t head.\t Sir  George
\nRankin said at p. 241
\n” In their Lordships’ opinion, whether a firm is  registered
\nor unregistered, partnership does not obstruct or defeat the
\nright of a partner to an adjustment on account of his  share
\nof  loss in the firm, whether the set off be  against  other
\nprofits under the same
\n(1)  (1936) L.R. 63 I.A. 233
\n265<\/span>
\nhead  of  income within the meaning of s. 6 of\tthe  Act  or
\nunder a different head (in which case only need recourse  be
\nhad to s. 24, sub-s. 1) “.\n<\/p>\n
Thus  the  Privy Council emphasised that the  object  of  s.
\n24(1)  was  to\tallow a set off of  profits  against  losses
\narising\t under different heads and Only in such cases  could
\nrecourse  be  had to s. 24(1).\tIn cases where\tprofits\t and
\nlosses\tarose  under the same head they had to\tbe  adjusted
\nagainst each other.  This Court in Anglo-French Textiles Co.
\nLtd.   v.  Commissioner\t of  Incometax,\t Madras<\/a>\t (1)   again
\nemphasised that distinction in the following words:-
\n”  Next, a, set off under section 24(1) can only be  claimed
\nwhen the loss arises under one head and the profits  against
\nwhich  it is sought to be set off arises under\ta  different
\nhead.  When the two arise under the same head, of course the
\nloss  can be deducted but that is done under section 10\t and
\nnot under section 24(1) (Per Bose, J.)
\nIndeed\tit is not disputed that when profit and\t loss  arose
\nunder  the  same head in any place which was not  an  Indian
\nState  recourse had to be had to the provisions of ss. 7  to
\n12B  and not to any other section.  But it was contended  on
\nbehalf of the Revenue that the first proviso to s. 24(1)  of
\nthe Indian Act not only affected the generality of the\tmain
\nenactment  but\talso introduced an addendum that  where\t the
\nprofits\t of the business arose in what was British India  in
\nthe  case of the Indian Act or what was Travancore State  in
\nthe case of the Travancore Act and the losses under the head
\nbusiness were sustained in an Indian State or in the  latter
\ncase  in  any  other Indian State or  British  India,  these
\nlosses\tcould not by virtue of the proviso be deducted\tfrom
\nprofits\t made  in British India or Travancore State  as\t the
\ncase  may be.  They could only be adjusted  against  profits
\narising\t in  an Indian State or in the\tcase  of  Travancore
\nState  in British India or another Indian State.   Thus\t the
\nproviso, it was contended, was a modification of the  method
\nof computation under s. 10(2) of the Indian Act for
\n(1)[1953] S.C.R. 448, 453.\n<\/p>\n
34<\/span>
\n266<\/span><\/p>\n
determining  profits  and  gains  of  the  business  of\t any
\nresident.   We should be averse to lend any  countenance  to
\nsuch a mode of construing a proviso unless the language used
\nexpressly   or\tby  necessary  intendment  leads   to\tthat
\nconclusion.   The  proper function of a proviso is  that  it
\nqualifies the generality of the main enactment, by providing
\nan  exception  and  taking out as it  were,  from  the\tmain
\nenactment,  a portion which, but for the proviso would\tfall
\nwithin the main enactment.  Ordinarily it is foreign to\t the
\nproper\tfunction  of  a\t proviso to  read  it  as  providing
\nsomething  by way of an addendum or dealing with  a  subject
\nwhich  is  foreign  to\tthe  main  enactment.\t”  It  is  a
\nfundamental  rule  of construction that a  proviso  must  be
\nconsidered with relation to the principal matter to which it
\nstands\tas  proviso  “.\t Therefore it  is  to  be  construed
\nharmoniously  with  the main enactment (Per Das, C.  J.)  in
\nAbdul Jabar Butt v. State of Jammu & Kashmir<\/a> (1).  Bhagwati,
\nJ.,  in\t Ram Narain Sons Ltd. v. Assistant  Commissioner  of
\nSales Tax<\/a> (2) said:\n<\/p>\n
” It is a cardinal rule of interpretation that a proviso  to
\na particular provision of a statute only embraces the  field
\nwhich  is covered by the main provision.  It carves  out  an
\nexception to the main provision to which it has been enacted
\nas a proviso and to no other “.\n<\/p>\n
Lord Macmillan in Madras & Southern Mahratta Railway Co.  v.
\nBezwada\t Municipality (3) laid down the sphere of a  proviso
\nas follows :-\n<\/p>\n
”  The\tproper function of a proviso is to except  and\tdeal
\nwith  a case which would otherwise fall within\tthe  general
\nlanguage  of the main enactment, and its effect is  confined
\nto  that case.\tWhere, as in the present case, the  language
\nof  the main enactment is clear and unambiguous,  a  proviso
\ncan  have no repercussion on the interpretation of the\tmain
\nenactment,  so\tas to exclude from it  by  implication\twhat
\nclearly falls within its express terms “.
\nThe territory of a proviso therefore is to carve out an
\n(1) [1957] S.C.R. 51. 59-  (2) [1955] 2 S.C.R. 483, 493.
\n(3) (1944) L.R. 71 I.A. 113, 122.\n<\/p>\n
267<\/span><\/p>\n
exception to the main enactment and exclude something  which
\notherwise  would  have been within the section.\t It  has  to
\noperate\t in the same field and if the language of  the\tmain
\nenactment  is  clear it cannot be used for  the\t purpose  of
\ninterpreting the main enactment or to exclude by implication
\nwhat  the  enactment clearly says unless the  words  of\t the
\nproviso\t are such that that is its necessary  effect.  (Vide
\nalso Corporation of The City of Toronto v.  Attorney-General
\nfor Canada) (1).\n<\/p>\n
In the proviso in dispute there are no positive words  which
\nwould\tsupport\t  an  interpretation  in   favour   of\t the
\ndisintegration\tof  the\t head ” business ”  and\t compel\t the
\napplication  of\t the  proviso to the  same  head,  specially
\nkeeping\t in  view the object of the main  section,  i.e.  s.
\n24(1)  which was to set off loss of profits or\tgains  under
\none  head against income, profits or gains under  any  other
\nhead.\n<\/p>\n
It  was\t then submitted that in the proviso the\t words\tused
\nwere  ”\t where the loss sustained is a loss  of\t profits  or
\ngains  ” and therefore it necessarily applied to the head  ”
\nbusiness  ” in the two respective territories.\tBut  in\t the
\nmain enactment itself, i. e., s. 24(1) of the Indian Act the
\nwords used are ” a loss of profits or gains “. The mere fact
\nthat  the word ” income ” is not used does not\tjustify\t the
\nconstruction.  that the intention of the Legislature was  to
\nrestrict the set off of profits and losses arising in Indian
\nStates only to business or to modify the mode of computation
\nunder s. 10 of the Indian Act.\tThat the use of these  words
\ndoes not circumscribe the proviso to business alone is shown
\nby  the difference in the language of the proviso to  sub_s.
\n(2) of s. 24 of the Indian Act:-\n<\/p>\n
S. 24 (2)……………………………………………\n<\/p>\n
”    provided that\n<\/p>\n
(a)  where the loss sustained is a loss of profits and gains
\nof a business or vocation to which the first proviso to sub-
\nsection (1) is applicable, and the profits and gains of that
\nbusiness,  profession or vocation are, under the  provisions
\nof clause (c) of sub-section (2) of section 14, exempt\tfrom
\ntax, such loss shall not be set
\n(1)[1946] A.C. 32, 37.\n<\/p>\n
268<\/span><\/p>\n
off except against profits and gains accruing or arising  in
\n(an  Indian  State) from the same  business,  profession  or
\nvocation and exempt from tax under the said provisions “.
\nThat  proviso  shows that where the  Legislature  wanted  to
\nrestrict  the losses and profits or gains to business  alone
\nthey  specifically said so.  It is significant that  in\t ss.
\n2(13) and (5) of the Indian Act of 1918 corresponding to ss.
\n2(15)  and  6 of the Indian Act of 1922 the word  used\twas”
\nincome ” which in the latter Act was expanded into ” income,
\nprofits\t and  gains  “.\t The  Privy  Council  said  in\t the
\nCommissioner of Income-tax, v. Shaw Wallace and Co. (1) that
\n,the  object of the Indian Act is to tax ” income ”  a\tterm
\nwhich  it does not define.  It is expanded no doubt  into  ”
\nincome,\t profits  and gains ” but the expansion\t is  more  a
\nmatter of words than of substance “. It was also so said  in
\nCommissioner  of  Income-tax, Bengal v. Mercantile  Bank  of
\nIndia Ltd. (2).\t See also London County Council v. Attorney-
\nGeneral (3).  Thus the mere use of the words loss of profits
\nor gains to be, set off against profits and gains would\t not
\nbe  sufficient to restrict the scope of the proviso  to\t the
\nprofits\t and losses arising under the head business  in\t the
\ntwo territories, i. e., British India and the Indian States.
\nOn  behalf of the Revenue an alternate argument\t was  raised
\nfor  which  support  was sought from two  decisions  of\t the
\nAllahabad High Court in In Re: Mishrimal Gulabchand (4)\t and
\nRaghunath Parshad v. Commissioner of Income-tax (5).   There
\nit was held that s. 10 of the Indian Act had to be read with
\ns.  14(2)  (e)\tand if profits could not be  added  for\t the
\npurposes of total income’ losses sustained also could not be
\ndeducted.  Counsel for the Revenue did not go to this extent
\nthat  because  profits\twere exempted losses  could  not  be
\ndeducted;  his argument was that because before 1939  income
\nwas  not  chargeable unless it was received  or\t accrued  in
\nBritish\t India therefore business in s. 10 could  only\tmean
\nbusiness in British India.  But this
\n(1)(1932) L. R. 59 I. A. 206, 212.\n<\/p>\n
(3)[1901] A.C. 26.\n<\/p>\n
(2)(1936) L.R. 63 I.A. 457.\n<\/p>\n
(4)[1950] 18 I.T.R. 75.\n<\/p>\n
(5) [1955] 28 I.T.R. 45.\n<\/p>\n
269<\/span><\/p>\n
argument  does\tnot  take note of the  definition  of  total
\nincome total world income’ and chargeability of total income
\nunder s. 3 or the provisions of s. 4 where in the case of  a
\nresident  ‘total income’ includes income, profits and  gains
\naccruing  within or without I British India.   Therefore  to
\nsay  that business in s. 10 means business in British  India
\nor  business  the profits or gains of which are\t taxable  in
\nBritish India is to ignore the definitions and ss. 3, 4\t and\n<\/p>\n
6. Section 10 of the Indian Act does not distinguish between
\nbusiness in British India and business in an Indian State or
\nso  divide  business.\tBut then it was\t said  that  as\t the
\nprofits\t or  gains  of\tbusiness in  an\t Indian\t State\twere
\nexempted from payment of tax in British India business in s.
\n10  must  mean\tbusiness in British India.   That  would  be
\nstraining  the\tlanguage  of s.\t 10  and  would\t necessitate
\naddition  of  words  in s. 10 which are\t not  there  in\t the
\nsection.\n<\/p>\n
In the course of argument a number of cases of the,  various
\nHigh   Courts  were  cited  and\t criticised.   We  find\t  it
\nunnecessary to refer to them because we have indicated above
\nwhat is the correct sphere of a proviso and what proviso (i)
\nto s. 24(1) means.\n<\/p>\n
In our view the question referred to the High Court which is
\ncommon to the two appeals was rightly answered in favour  of
\nthe assessee.  As to the second question in Civil Appeal No.
\n260  of 1958 we do not propose to say anything.\t It will  be
\nopen  to the assessee in that appeal to take such  steps  in
\nregard to that question as it may be advised.
\nIn the result the appeals fail and are dismissed with costs.
\nAppeals dismissed.\n<\/p>\n
270<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Commissioner Of … vs The Indo Mercantile Bank, … on 23 February, 1959 Equivalent citations: 1959 AIR 713, 1959 SCR Supl. (2) 256 Author: K L. Bench: Kapur, J.L. PETITIONER: THE COMMISSIONER OF INCOME-TAX,MYSORETRAVANCORE-COCHIN AND C Vs. RESPONDENT: THE INDO MERCANTILE BANK, LIMITED(and connected appeal) DATE OF JUDGMENT: 23\/02\/1959 BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-107592","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Commissioner Of ... vs The Indo Mercantile Bank, ... on 23 February, 1959 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-vs-the-indo-mercantile-bank-on-23-february-1959\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Commissioner Of ... vs The Indo Mercantile Bank, ... on 23 February, 1959 - 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